Covid-19 impact: More and more companies updating offer documents

Companies with issues in the pipeline reveal demand changes, economic uncertainty

Entities going for public offerings are amending the already-filed documents, reflecting a changed business environment following the outbreak.

Angel Broking and office space provider Mindspace Business Parks’ real estate investment trust have both seen addenda in the last one month.

Addenda are generally unusual, since initial public offerings (IPOs) happen within six months of the initial filing, said a professional who handles new issues. “During this time, things don’t change much. But we have had a black swan event... The regulator has been kind enough to allow such addenda as opposed to directing firms to re-file documents,” said the person.

Angel Broking had less than a tenth of its workforce going to office during the lockdown. Disruption was avoided by use of appropriate protocol, to allow employees to work from home, said a note. The broking business reportedly received a boost during the lockdown. Monthly additions surged in the March quarter (Q1CY20), said the updated document.

“Our average monthly client addition in the June 2020 quarter (Q1FY21) was 115,565, against an average monthly addition of 46,676 in the whole of FY20, registering a growth of 147.59 per cent. The robustness and scalability of our digital ecosystem was tested during Q1FY21, as we experienced a 2.48x, 2.21x, and 1.96x rise in average daily logins on our mobile application, average daily traded clients, and average fund transfer during this period, respectively,” it said in its July 17 addendum.

The addendum to Mindspace Business Parks’ REIT filings mentioned the pandemic’s impact on the commercial real estate sector.

“...the delay in decision-making for expansion, along with a delay in construction activity, will have a short-term impact on demand, a delay in supply, and a resulting hit on rental growth of Indian office markets,” said the June 25 note.

Experts say changes to a draft red herring prospectus (DRHP) are required to ensure that investors are acting on information that is current and relevant.

 

 

“Issuing addenda is a way to update the public on material information that has come to light since filing of the document. Addenda are treated as an extension of the offer document, and carry the same liability,” said Vishal Yaduvanshi, partner at IndusLaw.

“Restrictions on business operations have created uncertainty regarding future financial performance. This circumstance could eventually impact demand, and subsequently, business projections. Since the impact could be material, an addendum to disclosures becomes necessary to enable investors to take an informed decision,” said Moin Ladha, partner at Khaitan & Co.

A number of firms have filed for IPOs amid the outbreak. They’ve all faced different challenges in recent months, suggest analyst commentaries. Some are sourcing of raw material, a changed environment in terms of working from home, and availability of labour.  

There are 33 entities to have received regulatory approval for IPOs or follow-on public offers (FPOs). They are looking to raise Rs 33,406 crore, according to data from PRIME Database.

“Companies that have filed DRHPs before March 17 will have to issue a revised general information document (GID) to comply with the Sebi directive under the ICDR (Issue of Capital and Disclosure Requirements) Regulations. The GID, to be put up on company websites, will mention the significant changes (if any) that investors may consider in light of the changing business scenario. 

According to the Sebi guidelines, entities will have to file a revised DRHP, which must reflect the updated form of business reality in light of the Covid scenario,” said Rajeshree Sabnavis, founder of Rajeshree Sabnavis & Associates.